Creditors getting frostbite!

In a Talking Point I wrote on January 31, I maintained that creditors were being left out in the cold. It now transpires they are, in fact, sometimes being left out in sub-zero temperatures!

The Companies Act of 1995 stipulates that every company has to file annual accounts with the Registrar within 42 days of the end of the period by when the accounts are laid before the general meeting of the company. In practice, this means that a private company should file its annual return and accounts within 10 months of closure of its financial year.

The same law lays down that the fine for failing to file one's accounts is a fixed one of Lm1,000 and a fine of Lm20 for every day of delay in complying with the law. A company that is three years late in filing accounts should thus be fined the sum of Lm29,580. The Registrar has, however, for some reason I do not understand, decreed that only one hundredth of this fine be levied so that this same fine is reduced to Lm295.80! Unbelievable but true.

After the Price Club debacle in 2001, I advocated that businesses should be much more careful in establishing the creditworthiness of their debtors. One relatively easy and confidential way of doing this is to perform an online check of the debtor's accounts filed at the MFSA. When conducting these searches in our business, however, we found that many companies (including several of considerable size and "repute") were failing to submit their returns. Could the reason why this is happening be because it only costs a company a few hundred liri in fines for it to conceal its true financial situation from its creditors?

This is hardly a situation that encourages good business practice. While banks have the facility to insist on presentation of audited accounts from a business entity seeking bank financing, the same cannot be said for commercial operators. The only remedy left to them is to obtain a copy of whatever is filed at the MFSA. If the company does not file its accounts then the supplier is truly left out in the cold.

I, therefore, call on the Registrar of Companies to impose a much larger fine than he does today so as to serve as a real and effective deterrent against possible abuse. While businesses must be prepared to take a certain amount of risk, I think it is only right they are afforded some protection against dubious operators.

Otherwise, the business community that is so eagerly awaiting the outcome of the very lengthy court case will be hindered in its efforts to avoid a repetition of what happened with the collapse of Price Club supermarkets that collectively left them Lm8 million out of pocket.